Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
Speaker 1: my co host Matt Miller.
Speaker 2: Every business day, we bring you interviews from CEOs, market pros,
Speaker 2: and Bloomberg experts, along with essential market moving news.
Speaker 1: Find the Bloomberg Markets podcast called Apple Podcasts or wherever
Speaker 1: you listen to podcasts, and at Bloomberg dot com slash podcast.
Speaker 1: I want to talk some cars, Matt, some German cars.
Speaker 2: I would love to, you know, not just German cars.
Speaker 2: You're referring to the full shory story. They're made everywhere, right,
Speaker 2: and China is I think the real problem here.
Speaker 1: All right, let's go to Monica raymut Auto's industry disruption report.
Speaker 1: I didn't know we had a disruption reporter from Bloomberg
Speaker 1: News joins us here. So Monica, let's start with Volkswagen.
Speaker 1: What's the news coming out of our good friends from Germany?
Speaker 3: Thanks for having me, guys. I mean, the biggest news
Speaker 3: of the week, I would have to say is the
Speaker 3: deal with XPANG. Basically, Volkswagen came out yesterday and said
Speaker 3: that they're investing around seven hundred million dollars in this
Speaker 3: EV producer in China, and it's really at first for Volkswagen,
Speaker 3: it's basically sort of them admitting, you know, we can't
Speaker 3: we can't really keep up on the Chinese market, so
Speaker 3: we need to partner with with somebody who really has
Speaker 3: their finger on the pulse of what Chinese consumers want.
Speaker 2: It's amazing because I mean Volkswagen is usually the biggest
Speaker 2: or the second biggest car maker in the world. Right,
Speaker 2: how key is the Chinese market Monica to Volkswagen and
Speaker 2: is it that important to other manufacturers?
Speaker 4: Oh?
Speaker 3: Yeah, I mean, I mean China is absolutely huge. I
Speaker 3: mean it's it's basically like thirty percent of their revenues
Speaker 3: and has and has it has been. It has played
Speaker 3: a key role for them over the past several decades.
Speaker 3: And I mean Volkswagen was really a star there, the
Speaker 3: market leader for the past decades because they were banking
Speaker 3: on that German reputation of engineering ability and you know
Speaker 3: that Cachet as a as a foreign autumn. But now
Speaker 3: as the tide has turned and everyone's pivoting towards electric vehicles,
Speaker 3: you know, the local automakers, the local startups in China
Speaker 3: are able to leverage what they're able to do when
Speaker 3: it comes to software and technology and the consumers are
Speaker 3: are pivoting that way, and Volkswagen has been really slow
Speaker 3: to sort of pivot in that direction. And they've they've
Speaker 3: really struggled on software, you know, trying to.
Speaker 2: Now, Herbert Deese was chased out as CEO, but he
Speaker 2: was I kept seeing headlines like spending fifty billion dollars
Speaker 2: to build evs and he had I think ralvald wrote
Speaker 2: a story back in the day that Deese wanted to
Speaker 2: start a huge software company within Folkswagen and he was
Speaker 2: spending almost thirty billion dollars on that.
Speaker 5: What happened to all those efforts?
Speaker 3: Oh yeah, Oh, I mean those efforts are still underway.
Speaker 3: The software unit carried is still alive and kicking a
Speaker 3: bit barely, not barely, I shouldn't say that, But all
Speaker 3: of those efforts, they haven't all been for nought.
Speaker 6: You know.
Speaker 3: Carriod, the software unit is still creating two of the
Speaker 3: big coming platforms for Volkswagen, the two big EV platforms,
Speaker 3: one for the premium brands Portion and Audi, and then
Speaker 3: one sort of like a catch all platform that can
Speaker 3: be tailored across all of the ten brands. The problem
Speaker 3: was Carriod, the software unit just took on too many
Speaker 3: tasks at the same time, and they were overloaded and
Speaker 3: they weren't able to deliver non glitchy software, especially when
Speaker 3: it came to the ID series for Volkswagen. So basically,
Speaker 3: Luma came in and he said, okay, hold up, we
Speaker 3: need to clean house a bit, we need to refocus
Speaker 3: our energies. And he's he's put in a new CEO
Speaker 3: at Carriod. He's you know, created this five point plan
Speaker 3: of trying to get things in order. And he's also
Speaker 3: taken a play a page from the playbook of Portia
Speaker 3: and sort of saying, you know, listen, compared to my predecessor,
Speaker 3: I'm not afraid to go into third party partnerships to
Speaker 3: get the best technology here. And he's really saying, yes,
Speaker 3: we will stick with our software strategy with carry It.
Speaker 3: Yes we will continue to deliver the platforms, the EV
Speaker 3: platforms for Audi, for the for their q Q six,
Speaker 3: for the Pasha Emacon, but also moving forward, we're not
Speaker 3: going to be afraid to partner with other people who
Speaker 3: who have been doing this a little bit longer or
Speaker 3: have more expertise that we currently don't have.
Speaker 1: So Monica, just give us the kind of a sense,
Speaker 1: your sense of how the European automakers in general are
Speaker 1: are pursuing this this transition to EV. Is there a
Speaker 1: sense that they're on the cutting edge or they're lagging
Speaker 1: kind of where are they?
Speaker 3: Oh man, that's a that's a really tough question. I
Speaker 3: mean Volkswagen was sort of the first European car maker
Speaker 3: to you know, jump in feet first, uh, into the
Speaker 3: into the EV uh you know push. I mean that
Speaker 3: all came as a result of the diesel scandal and
Speaker 3: they were sort of, you know, nudged a bit in
Speaker 3: that direction, right, but they've really been you know, they
Speaker 3: sort of started out, you know, they were the first
Speaker 3: ones to move forward, and the you had Mercedes and
Speaker 3: BMW sort of moving forward on that. The difference I
Speaker 3: think there is you have Mercedes and BMW that are
Speaker 3: more in the premium and luxury market, right, and so
Speaker 3: they're able to It's the same thing with Portia. They're
Speaker 3: still able to leverage their their IC sales, their combustion
Speaker 3: engine sales as and use that to fund partially pushed
Speaker 3: into evs.
Speaker 7: Apparently, yess.
Speaker 2: Indeed, Monica are the other car makers as active in China.
Speaker 2: I remember seeing some stories about some of the Stilantis brands,
Speaker 2: you know, pulling out. Now, maybe it just wasn't a
Speaker 2: big enough market for those individual brands, but surely Tavares
Speaker 2: has to be worried if it's this important to BLOOMA.
Speaker 3: Yes, I mean some, I mean some car makers are
Speaker 3: more active in China than other Stalantis. I think has
Speaker 3: has your right, has moved away from China and is
Speaker 3: focusing his efforts elsewhere. I think the concern for Tavares
Speaker 3: more is what do the Chinese car makers mean for
Speaker 3: Europe when they come over here? Because the Chinese makers
Speaker 3: are focusing more on you know, sort of these small, smaller,
Speaker 3: smaller vehicles that are maybe more affordable, and if the
Speaker 3: European car makers can't focus on that segment, there's a
Speaker 3: real fear among some analysts and automakers that the Chinese
Speaker 3: makers could capture a segment of of the of the
Speaker 3: market that the European makers are not focusing on. And
Speaker 3: so that's why, you know, there's this drum beat, at
Speaker 3: least from Tavares that we need to make these vehicles
Speaker 3: more affordable. We need to get regulations, we need to
Speaker 3: get you know, government policies on board in Europe to
Speaker 3: make the you know, these cars more affordable in Europe.
Speaker 3: But in terms of how other carmakers are doing in China,
Speaker 3: I mean it's really Folks was at the top of
Speaker 3: the list for for a long time. But you have
Speaker 3: Uid that's, you know, really at the top now when
Speaker 3: it comes to EV sales, and then you have Tesla
Speaker 3: who can't certainly can't forgotten. And you know, those are
Speaker 3: the two big players, at least to my mind.
Speaker 1: All right, Monica, great stuff, great catching up with you,
Speaker 1: Monica Raymuland, Auto's industry disruption reporter for Bloomberg News.
Speaker 2: Joining us how to Berlin, joining us out of Berlin,
Speaker 2: right in my old office, you're old.
Speaker 5: Beat right, yeah, exactly right. Where where's your car these days?
Speaker 1: Are your challenger?
Speaker 8: Do we know where it is?
Speaker 2: Well, supposedly it's scheduled for production in uh in Canada, Okay,
Speaker 2: But they haven't sent me the actual production confirmation yet,
Speaker 2: so I'm still waiting. And in the meantime, I'm looking
Speaker 2: across like Auto Trader and maybe I'm thinking maybe I
Speaker 2: should go for bright orange instead of dark green.
Speaker 4: I'm not sure.
Speaker 1: Yeah, so you haven't selected that even that yet?
Speaker 6: All right?
Speaker 1: It's just supply chain still an issue in the auto industry.
Speaker 1: Matt's been waiting for this challenger with this scat pack
Speaker 1: all year logic for like a year. I don't know
Speaker 1: what's going on there.
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Speaker 1: Matt Miller, Paul Sweeney here in our Bloomberg Interactive Brokers studio,
Speaker 1: and I forgot to mention we are simulcasting on YouTube
Speaker 1: so people see me, so people can see the MAT's
Speaker 1: actually here. He's back after a little hiatus in the afternoon.
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Speaker 1: Bloomberg Global News. All right, this has been in addition
Speaker 1: to just a week of I think one hundred and
Speaker 1: sixty five of the S and P five hundred companies
Speaker 1: reporting earnings next week, and I think one hundred and
Speaker 1: seventy two next week, So super busy in the earning season.
Speaker 1: But we've had a lot of central bank movement over
Speaker 1: the past couple of days, including the Fed yesterday and
Speaker 1: the European Central Bank today. So let's kind of break
Speaker 1: it all down and see where we are. Anika Gupta
Speaker 1: joins us. She is the director of Macroeconomic Research, Equities
Speaker 1: and Commodities for Wisdom treat She joins us via zoom. So, Anika, boy,
Speaker 1: what do you make of kind of what we've seen
Speaker 1: coming out of these central banks over the past twenty
Speaker 1: four hours.
Speaker 9: Yeah, it's been really interesting, Paul. You know, at one
Speaker 9: hund we have both of these central banks, the FED
Speaker 9: as well as the ECB. Uh, you know, keeping their
Speaker 9: optionality open. I think they they they've they've tried to,
Speaker 9: you know, indicate that they have they have covered quite
Speaker 9: a bit of ground on the inflation front. The only
Speaker 9: difference between the FED and the ECB is the FED
Speaker 9: is facing an economy which is a lot more resilient
Speaker 9: and stronger based on the consumer strength, whereas in the
Speaker 9: Eurozone the ECB is faced with the situation where they
Speaker 9: have made a lot of progress on inflation. Yet uh,
Speaker 9: you know, the recent indicators are pointing to growth slowing down,
Speaker 9: so we are headed for a period of stagnation before
Speaker 9: we actually get that rebound back into a growth phase.
Speaker 9: So I think the ECB gave out a lot today
Speaker 9: at the at the at the meeting where you know,
Speaker 9: some of the some of the statements that were made
Speaker 9: when when President la guard was asked, is there still
Speaker 9: more ground to cover? And you know, she clearly said
Speaker 9: at this point she wouldn't say so. And I think
Speaker 9: that that indicates this looks likely to be the last hike.
Speaker 9: But clearly they've kept that optionality open where you know,
Speaker 9: there's so much additional data to come out until the
Speaker 9: September meeting that they you know, anything could influence their decision.
Speaker 9: But as of now, I would say for both central banks,
Speaker 9: it looks like this is the last one in their
Speaker 9: tightening cycle.
Speaker 2: Well, you know, Chair and Powell referenced the data points
Speaker 2: that he was looking forward to between now and September meeting.
Speaker 5: There are many.
Speaker 2: We got some this morning though, that were pretty darn impressive.
Speaker 2: GDP came out at two point four percent for the
Speaker 2: second quarter. We were looking for one point eight percent
Speaker 2: in our survey of economists. Personal consumption consumer spending also
Speaker 2: higher than anticipated one point six percent, And you got
Speaker 2: the core PCE, which is the Fed's preferred gauge of
Speaker 2: inflation and not nearly as bad as we expected at
Speaker 2: three point eight percent rather than four percent. So this
Speaker 2: looks pretty darn goldilocks to me. How do you think
Speaker 2: it looks to Chair Powell?
Speaker 9: Well, you're absolutely right, Matt. You know, I think we've
Speaker 9: even seen the IMF echo similar a similar viewpoint where
Speaker 9: the US has been and is proving to be a
Speaker 9: lot more resilient than investors expected at the at the
Speaker 9: start of the year. And I think, you know, given
Speaker 9: given the fact that the US economy has been that brasilient,
Speaker 9: it does open a goldilocks environment because we have seen
Speaker 9: progress made on inflation, and given the fact that the
Speaker 9: growth has been quite resilient, it should put this fit
Speaker 9: in a situation where they could hold rates at current levels,
Speaker 9: and then that expectation of them, you know, beginning to
Speaker 9: cut just gets postponed further down the line.
Speaker 1: So Anka, you're based in life. And then I believe
Speaker 1: right around one King William Street, which is just right
Speaker 1: around the corner from Bloomberg's European headquarters at Queen Victoria Street,
Speaker 1: talk to us about inflation, inflation in the UK, inflation
Speaker 1: in across Europe. Christine Leguard called that out as still
Speaker 1: higher than she would like to say. Why is inflation
Speaker 1: across Europe maybe a little bit stickier than maybe what
Speaker 1: we're seeing here in the US.
Speaker 7: So I think what seems to.
Speaker 9: Be quite different in the UK is largely due to
Speaker 9: more structural factors. I think Brexit in a big way
Speaker 9: has contributed to inflation being a lot stickier. That being said,
Speaker 9: the most recent inflation report has shown you know, a
Speaker 9: small sliver of cooling. But I think Gregsity has a
Speaker 9: very important role to play as to why the UK
Speaker 9: seems to be the laggard in actually bringing down that
Speaker 9: inflation side. But for the EU Zone, you know, what
Speaker 9: seems to be holding inflation up quite strong has been
Speaker 9: the strength in the labor of MAK. Wages have been rising,
Speaker 9: and I think that that has essentially, from an income standpoint,
Speaker 9: helped your your your zone consumer you know, actually have
Speaker 9: a better and a higher purchasing power. So you've got
Speaker 9: wages rising, You've got inflation beginning to come down, be
Speaker 9: it headline inflation feeding into lower core inflation, and that
Speaker 9: is just you know, from an income standpoint, making the
Speaker 9: uarsone consumer a lot, putting them in a much better position.
Speaker 9: So I think those two factors really stand out, and
Speaker 9: that's that's one of the reasons why our fight inflation
Speaker 9: has been a bit of a laggart compared to the US.
Speaker 2: So you were talking about how rate hikes are going
Speaker 2: to get pushed back, but I noticed on the dot
Speaker 2: plot that we're expecting, at least the FED itself is
Speaker 2: forecasting a full percentage point of rate cuts over the
Speaker 2: next year. Why do you think that the Fed's forecast
Speaker 2: differ so much from what Jerome Powell, you know, we'll
Speaker 2: say at any given press conference.
Speaker 9: Well, I think it's it's, you know, purely based on
Speaker 9: the fact that the economy has been fairly resilient. There
Speaker 9: are also risks lurking around. You know, we've seen commodity
Speaker 9: prices over the past few weeks actually rebound. We've seen uh,
Speaker 9: you know, the escalation between Russia and Ukraine actually increase, uh,
Speaker 9: you know, with Russia pulling out of the Black Sea
Speaker 9: grain deal, and so as a consequence, we've seen agricultural
Speaker 9: prices within the commodity spectrum also rise. U and I
Speaker 9: think central bankers have taken note of that that these
Speaker 9: these risks are there at the horizon and for the US,
Speaker 9: it's quite important because you know, the we're seeing growth
Speaker 9: quite resilient. For the Eurozone, we are seeing growth being
Speaker 9: quite tepid. You know, forward looking indicators are saying there's
Speaker 9: weakness ahead. So I think the ECB is right to
Speaker 9: say that they you know, they they they've covered quite
Speaker 9: a bit of ground. There isn't all that more left
Speaker 9: to do so at this point in time. But for
Speaker 9: the US, you know, as as growth seems to be
Speaker 9: a lot stronger and the consumers appears to be a
Speaker 9: lot more resilient, and you're also seeing a few inflationary
Speaker 9: concerns rising on the horizon, there's always the risk that
Speaker 9: you know, they've go on me just does better than expected,
Speaker 9: and that gives less need for power to actually have
Speaker 9: to invene intervene.
Speaker 2: With k What does that mean for the FX picture?
Speaker 2: I mean, we had seen the dollar hold strong for
Speaker 2: so long this year against all you know, predictions, and
Speaker 2: then it came kind of the Bloomberg Dollar Index came
Speaker 2: tumbling down a couple of weeks ago. Now it's on
Speaker 2: a steady climb higher. You know, in the euros trading
Speaker 2: it less than a dollar ten right. The pound is
Speaker 2: trading it less than a dollar thirty. What do you
Speaker 2: think the growth differential means for the currencies?
Speaker 9: It has, It has a very big impact. So what
Speaker 9: we've seen is the dollar response to two important factors,
Speaker 9: one being the growth of differential and the second being
Speaker 9: relative interest Now. Clearly, until now, the dollar was weakening
Speaker 9: because interest rates and the rest of the developed market
Speaker 9: world was actually rising and interest rates expectations for the
Speaker 9: FED were actually declining, so there were expectations for them
Speaker 9: to pause or cut. But the way things are evolving
Speaker 9: with the strength of the US economy, you know, we're
Speaker 9: now seeing relative interest rates move in favor of can
Speaker 9: continue to remove in favor of developed developed market economies
Speaker 9: as opposed to the US. And at the same time,
Speaker 9: we're also seeing growth prospects in UK and Eurozone actually
Speaker 9: deteriorate compared to the US, and hence that seems to
Speaker 9: be the dominant factor in play right now, which is
Speaker 9: why the dollar has been strengthening.
Speaker 1: All right, Anitka, thank you so much for joining us.
Speaker 1: Really appreciate getting your perspective. Anika Gutta. She is the
Speaker 1: director of me Acroeconomic Research for the Equities and Commodities
Speaker 1: Business at Wisdom Treaty is based in London. Again, we
Speaker 1: had the ECB this morning, fed yesterday. Rate increases. Yes,
Speaker 1: the market's kind of reading into it that they may
Speaker 1: be perhaps the last of the rate increases, at least
Speaker 1: for now, when we're seeing some reaction in the market's
Speaker 1: s and P five hundred up a half one percent.
Speaker 6: You're listening to the tape cans our live program, Bloomberg
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Speaker 6: flagship New York station, Just say Alexa Play Bloomberg eleven thirty.
Speaker 10: I'd like to begin with your newest rules that you
Speaker 10: just unveiled yesterday, putting restrictions on brokerages and money managers
Speaker 10: and their use of AI to interact with clients. What
Speaker 10: is your primary concern with the adoption of this technology
Speaker 10: that you're trying to address?
Speaker 11: First, Kaylee, it's good to be with you, But talking
Speaker 11: about this, I think that predict data analytics, including artificial intelligence,
Speaker 11: is the transformative technology of our times, and every bit
Speaker 11: is transformatives to the Internet or mass production of the
Speaker 11: automobile one hundred years ago.
Speaker 4: Now, what are we trying to address?
Speaker 11: When an investment advisor or a broker works with you
Speaker 11: as an investor, they're not supposed to put their interest,
Speaker 11: the advisor's interest ahead of yours, Kayley, as an investor.
Speaker 11: And so what we're trying to do is make sure
Speaker 11: that the technology aligns with that standard, that the technology
Speaker 11: that can predict about each and every one of us
Speaker 11: so much about how we might react to a little
Speaker 11: behavioral prompt or a little knowledge how we might react.
Speaker 11: That they're putting our interest as an investor in the
Speaker 11: right place and not putting themselves ahead of it.
Speaker 10: And of course the AI move wasn't the only one
Speaker 10: you made yesterday. You also just approved a plan to
Speaker 10: require companies to disclose cyber breaches within a four business
Speaker 10: day timeline.
Speaker 12: Why is that the appropriate time break?
Speaker 11: Well, if I could just give a little bit more,
Speaker 11: it's about material.
Speaker 4: Incidents.
Speaker 11: So if a company lost a factory and that factory
Speaker 11: is wiped out, and that factory is material to its operations,
Speaker 11: let's say because it's lost to a hurricane. Investors need
Speaker 11: to know when they're buying and selling the stock. In
Speaker 11: a similar way, if you had a cyber incident that
Speaker 11: management determines as material you know, hundreds of millions of
Speaker 11: files lost or something or compromised.
Speaker 4: Investors benefit from that disclosure.
Speaker 10: But giving business is just four days to disclose that.
Speaker 11: That's what we have in our rules today currently four
Speaker 11: business days if you have, like if that factory you know,
Speaker 11: was wiped out by a hurricane, to put out the
Speaker 11: material information.
Speaker 4: And so that's consistent with rules on the books.
Speaker 11: And by the way, many companies have been making such disclosures,
Speaker 11: some haven't. It's been fragmented and we thought it was
Speaker 11: important to bring some consistency to it around these material events.
Speaker 13: Mister chaired, Danny Berger here in London, really wonderful to
Speaker 13: speak with you today now on some of your proposals
Speaker 13: when it comes to equity market structural reforms. You joined
Speaker 13: Bloomberg TV back in March. You said, of market participants,
Speaker 13: give us your best advice, tell us what you think.
Speaker 7: What did you get.
Speaker 13: What was the best advice you got?
Speaker 11: Well, we got in terms of equity market structure, thousands
Speaker 11: of comments. So I would say that what we're about
Speaker 11: at the SEC is trying to drive greater efficiency and
Speaker 11: competition in those markets, so when you send an order
Speaker 11: into a broker, that you feel that you're getting best
Speaker 11: execution in that order, and also that the markets themselves
Speaker 11: are competitive. So one of our rules was about sort
Speaker 11: of leveling the playing field between the lit markets, the
Speaker 11: so called New York Stock Exchange and NASDAK and so forth,
Speaker 11: and the wholesalers are dark market, which at times the
Speaker 11: dark part of the markets are between a third and
Speaker 11: a half of the market. So it's trying to bring
Speaker 11: some level the playing field and ensure that investors are
Speaker 11: getting best execution in these markets.
Speaker 13: What about in terms of the feedback you got, are
Speaker 13: you taking any of that on board? Would you change
Speaker 13: anything considering what you've heard so far?
Speaker 4: Well, we do that as a regular basis.
Speaker 11: When we make a proposal, we put it out to
Speaker 11: public comment and get feedback. And we put out four
Speaker 11: separate proposals for different aspects in the markets, and I
Speaker 11: think we've gotten four to six thousand comments on each
Speaker 11: of them. So and we naturally consider it and the
Speaker 11: staff makes recommendations about adjustments.
Speaker 10: Okay, I'd like to discuss another proposed rulemaking that has
Speaker 10: received a certain degree of feedback your climate risk disclosures,
Speaker 10: specifically as it relates to Scope three emissions. What conversations
Speaker 10: are you having around Scope three in particular.
Speaker 11: Well, we've heard a lot from the public on this,
Speaker 11: but to set the stage, companies today are making disclosures
Speaker 11: around climate risk. In fact, well over half of the
Speaker 11: top thousand or so companies currently make climate risk disclosures,
Speaker 11: including greenhouse gas emission disclosure. So we're trying to bring
Speaker 11: consistency to that and yes for investors that they can
Speaker 11: compare comparability for that. You asked about one part of
Speaker 11: greenhouse gas missions, so called Scope three, which is about
Speaker 11: the supply chain and where a lot of the concern lines,
Speaker 11: and so we've heard from a lot of commenters about that,
Speaker 11: both from issuers and investors.
Speaker 4: We understood when we made a proposal.
Speaker 11: That this was not as well developed so called disclosures
Speaker 11: around supply chain emissions, and so we're taking that into consideration.
Speaker 11: And as I just chatted with your colleague, the staff
Speaker 11: considers what to recommend upon adoption and whether to make adjustments.
Speaker 10: So we could see you change there potentially.
Speaker 11: Well, just as in the equity markets that I talked about,
Speaker 11: we do take these comments seriously, Kayley. It's a really
Speaker 11: rigorous exercise in climate. We got sixteen thousand comments.
Speaker 4: So it's a lot to sort of sort through. But
Speaker 4: the Scope three issue is one that we've heard significant comments.
Speaker 11: Interestingly, we've heard from I think forty eight or forty
Speaker 11: nine of the state farm.
Speaker 4: Bureaus literally about well, what is this effect? And we
Speaker 4: only oversee.
Speaker 11: The public companies, the six or seven thousand public companies.
Speaker 4: That's it.
Speaker 11: We are a disclosure based agency. I often say we're
Speaker 11: merit neutral.
Speaker 4: We are not. You know, we're not.
Speaker 11: This disclosure is about something already happening between investors and issuers,
Speaker 11: and it's an important thing to bring consistency. It's not
Speaker 11: about those, you know, those farmers and ranchers who thoughtfully
Speaker 11: wrote us.
Speaker 4: So we've heard.
Speaker 10: Okay, I'd like to move to a different topic which
Speaker 10: has gotten a lot of attention lately, Crypto, specifically a
Speaker 10: ruling that was made in the Ripple case that XRP
Speaker 10: is only a security when sold to institutional investors, not
Speaker 10: so with retail investors. I know you've previously said you
Speaker 10: were disappointed by that ruling. The SEC has also said
Speaker 10: that it intends to seek further review. So does that
Speaker 10: mean you are going to appeal it? Can you elaborate
Speaker 10: on your thoughts around that ruling.
Speaker 11: Kayleie, great question, But the Commission, I'm one of five commissioners.
Speaker 4: The Commission has not acted on that, and.
Speaker 11: If the staff makes a recommendation, we'll have a discussion
Speaker 11: of it and we'll take it up then.
Speaker 4: But I don't really have anything more on.
Speaker 6: You for a you for that.
Speaker 13: In the meantime, as we wait for this, what does
Speaker 13: it mean for your efforts around crypto, for your efforts
Speaker 13: to try to protect the consumer in these areas?
Speaker 7: Does it complicate it?
Speaker 11: Look this field of crypto investing, a lot of investors
Speaker 11: should be aware it's not only a highly speculative asset class,
Speaker 11: it's also one that they currently should not assume that
Speaker 11: they're getting the protections of the securities laws, even though
Speaker 11: the securities laws apply to many of those tokens without
Speaker 11: prejudging anyone, but you as investors are not getting the.
Speaker 4: Full, fair and truthful disclosure.
Speaker 11: And the platforms the intermediaries are doing things that we
Speaker 11: would never in a day allow or think the New
Speaker 11: York Stock Exchange or NASDAQ would do. The platforms often
Speaker 11: are co mingling and trading against you and have market
Speaker 11: makers that are on the other side of your trades,
Speaker 11: and we don't allow that in the rest of our
Speaker 11: securities markets and the securities laws are there to protect you.
Speaker 4: And that's right now.
Speaker 11: This is a field rife with fraud, rife with huckster
Speaker 11: and they're good faith actors as well, but there are
Speaker 11: far too many that aren't.
Speaker 13: And of course you've brought cases against crypto exchanges on
Speaker 13: this point, But do you need to change tactic? Does
Speaker 13: it change anything for those cases? Again this XRP ruling.
Speaker 11: Again, I'm not going to go into any one ruling,
Speaker 11: but I think that the securities laws are clear and
Speaker 11: if you're if the public is investing in your project
Speaker 11: because they're anticipating profits based upon the efforts of that project,
Speaker 11: or there's entrepreneurs congress painted with a broad brush, and
Speaker 11: I would ask you this, It's like, when you look
Speaker 11: at a token, you can find a website, you can
Speaker 11: find a CEO, you can find a Twitter or x feed,
Speaker 11: whatever it's called these days. And there are entrepreneurs behind
Speaker 11: many of these projects. Without again prejudging any one of
Speaker 11: them Elsewhere in.
Speaker 10: The crypto space. I'd like to discuss the spot ETF
Speaker 10: because we have seen a wave of filings recently recently
Speaker 10: from Blackrock and others trying to finally achieve this one
Speaker 10: has never been approved in the US, just a futures ETF.
Speaker 10: It seems like everyone thinks there has been a tone shift,
Speaker 10: that something is different this time around. What do you
Speaker 10: make of that wave of recent filings. Has anything actually
Speaker 10: changed for the sec.
Speaker 4: Kayleye, Probably won't surprise you.
Speaker 11: Those filings do ultimately come up to a five member commission,
Speaker 11: so I can't prejudge any filing. But back to your colleague,
Speaker 11: as I said, this is a field that there's a
Speaker 11: lot of non compliance in this field, and that the
Speaker 11: platforms themselves where trading is occurring of various crypto tokens.
Speaker 11: Though some of it comes under the securities laws, currently
Speaker 11: they're not necessarily compliant with those time test of protections
Speaker 11: against fraud and manipulation.
Speaker 10: Okay, on the subject of securities laws, which obviously is
Speaker 10: your purview at the SEC. Just yesterday House Financial Services
Speaker 10: Committee passed through committee legislation on crypto market structure that
Speaker 10: would actually give more authority in regulating this space. To
Speaker 10: the CFTC still has a long way to go if
Speaker 10: it were to become law.
Speaker 12: But what is your thought on that legislation.
Speaker 4: I sort of share my thoughts directly with members on
Speaker 4: the way I told them.
Speaker 11: I understand your question, Kayley, but I think that those
Speaker 11: members on the hill would appreciate if I continue to
Speaker 11: share my thoughts directly with them.
Speaker 13: Not too dissimilar, mister Tara, I wonder if there's some
Speaker 13: degree that you would want a wider scope when it
Speaker 13: comes handing down fines to batter actors. Do you think
Speaker 13: it would be helpful to have higher finds again in
Speaker 13: order to discourage certain behaviors.
Speaker 11: I would say this, we have good tools at the
Speaker 11: SEC around not just penalties, but also what's called discoragement,
Speaker 11: to give back ill gotten gains and so forth. But
Speaker 11: if you're asking whether we could use more authorities, I
Speaker 11: would say, we need more cops on the beat, We
Speaker 11: need more resources. Our agency is just the size we
Speaker 11: were in twenty sixteen. We actually shrank, We've kind of
Speaker 11: come back, and yet the markets have grown so significantly
Speaker 11: in those seven years.
Speaker 10: And finally, as you say you need more resources, I
Speaker 10: wonder how you feel about the ability of you to
Speaker 10: get those things from this Congress, in particular, when you
Speaker 10: have certain members of Congress who have said things like
Speaker 10: introducing legislation to remove you as chair, referring to tyrannical chairmen,
Speaker 10: including the current one, Does it mean it more difficult
Speaker 10: to do your job when there's that kind of political
Speaker 10: rhetoric out there in your efforts to protect investors.
Speaker 11: We work closely with Congress and individual members, and I
Speaker 11: look forward to those public debates. I think that we're
Speaker 11: really an important agency. The capital markets really wouldn't work
Speaker 11: without cops on the beat and rules of the road.
Speaker 11: Just you know, think if you're watching soccer matches, if
Speaker 11: there were no refs on the field, what would that
Speaker 11: soccer match look like? It would look first more like rugby,
Speaker 11: and then after a while it would really look worse
Speaker 11: and fans wouldn't come to the field anymore or well
Speaker 11: most so, I really do think that it's important to
Speaker 11: have this agency, and we're part of these well regulated markets.
Speaker 6: You're listening to the Team Ken's a live program Bloomberg
Speaker 6: Markets weekdays at ten am Eastern on Bloomberg dot com,
Speaker 6: the iHeartRadio app, and the Bloomberg Business app or listen
Speaker 6: on demand wherever you get your podcasts.
Speaker 1: We're talking about A in the context of financial services,
Speaker 1: businesses and markets. It's also a big deal basically for
Speaker 1: every other industry out there. And what does it mean
Speaker 1: for a lot of these industries and people that work
Speaker 1: in the industries, think Hollywood writers. That's come up in
Speaker 1: their discussion. Ronie A. Settholm joins us. She is a
Speaker 1: managing partner of set Home Law Group. She joins US
Speaker 1: life here in our Bloomberg Interactive Broker studio. Thank you
Speaker 1: so much for joining us. So what are some of
Speaker 1: the early thoughts within the legal community about AI. I
Speaker 1: don't know where this thing goes.
Speaker 7: Thank you for having me well.
Speaker 14: AI is definitely a hotbed topic and there are so
Speaker 14: many issues to discuss.
Speaker 7: We don't have time.
Speaker 14: We can speak for days. But you know, one thing
Speaker 14: that I'm concerned about as an attorney is the use
Speaker 14: of AI. While I don't think there's going to be
Speaker 14: a nefarious use in this labor dispute, as the technology
Speaker 14: becomes more prevalent and accessible, who knows what anyone will
Speaker 14: actually be saying. Because once I've captured you know your
Speaker 14: image and your tone using AI, I can manipulate it
Speaker 14: to say anything, and so this is going to raise
Speaker 14: a lot of eyebrows.
Speaker 5: And it's going to raise I guess a lot of.
Speaker 2: Lawsuits, right, I mean yes, for the legal industry, this
Speaker 2: is going to be a big money maker.
Speaker 7: It very well can be.
Speaker 14: You know, another legal issue that we're talking about is
Speaker 14: what kind of intellectual property rights exist when you use AI?
Speaker 7: Right now, the answer is.
Speaker 14: None, because it only protects original works created by a
Speaker 14: human being. And so there's a huge discussion now as
Speaker 14: to what is the purpose beyond making money? Of course,
Speaker 14: right you create a television show or something else using
Speaker 14: AI quickly and you make money when people watch it.
Speaker 7: Okay, fine, but do you actually own it?
Speaker 6: Yep?
Speaker 7: Likely not.
Speaker 1: So what are the like for example, just in this
Speaker 1: writer's strike. Forget the actors for the moment, but just
Speaker 1: the writer's strike. I mean, that's intellectual property that they
Speaker 1: have created.
Speaker 7: I guess the question is.
Speaker 5: There are two issues there.
Speaker 2: Right on the one hand, they don't want anyone using
Speaker 2: the IP that they've created, Right on the other hand,
Speaker 2: they're worried that AI is going to come in and
Speaker 2: write new material instead of thanks it.
Speaker 14: Yes, exactly, and depending on what their current CBA collective
Speaker 14: Bargaining agreement says, they may have already relinquished all rights
Speaker 14: to use of those materials you.
Speaker 5: Know, they've already written.
Speaker 2: I mean, for example, Sarah Silberman wrote a book and
Speaker 2: it's been I guess accessed by open ai.
Speaker 5: In training. I would guess, yes, that's exactly right. And
Speaker 5: so and now she's suing what open ai.
Speaker 14: She's suing open ai and meta and it's for copyright
Speaker 14: infringement because one of the ways you can infringe upon
Speaker 14: copyright is to utilize someone else's work to create a
Speaker 14: derivative work or maybe a sequel, you know, in more
Speaker 14: common vernacular.
Speaker 5: So, but Ronnia, this isn't a breaking new ground. This
Speaker 5: isn't you know.
Speaker 2: We don't have to create any kind of new framework
Speaker 2: to address these issues.
Speaker 5: The law is already there and it's clear, Yes, that
Speaker 5: is true.
Speaker 14: I think some of what is happening now is consumers
Speaker 14: are talking about it. Are we as consumers going to
Speaker 14: accept these AI generated copies or movies or television shows
Speaker 14: or not? Are we as consumer is going to accept
Speaker 14: AI generated anything? I mean, this is really a kind
Speaker 14: of an existential threat. Almost any job if you think
Speaker 14: about it.
Speaker 2: But again, those are two issues right on the issues,
Speaker 2: We're not going to accept theft if a company uses
Speaker 2: copyrighted material and doesn't you know, follow proper procedures there,
Speaker 2: i e. Paying some kind of royalties to Sarah Silverman
Speaker 2: in this case, that's not okay. On the other hand,
Speaker 2: if open ai writes a new comedy special with without
Speaker 2: infringing on anyone's copyright, which I don't know how that
Speaker 2: would happen because they have to train the model.
Speaker 14: But exactly I don't know how that would happen either,
Speaker 14: because AI is only as smart as the information you provide.
Speaker 5: I so I'm not just talk to myself into understanding
Speaker 5: what you were saying.
Speaker 7: Glad to feel of help.
Speaker 1: So is there sense Runnie that the legal industry. I mean,
Speaker 1: hopefully they're going to do better than our regulars in Washington,
Speaker 1: But is there any sense that there's Is there any
Speaker 1: academic work being done in the legal industry about how
Speaker 1: to look at this stuff from a legal perspective?
Speaker 7: I think it's extremely exploratory.
Speaker 14: So, just like any technology, some use of AI will
Speaker 14: be beneficial to all and some of it won't. And
Speaker 14: in fact, you're likely using AI now without even knowing right,
Speaker 14: because it's part of a lot of systems that you're
Speaker 14: currently utilizing. And so I think there has to be
Speaker 14: some regulation around how to use it and when not
Speaker 14: to use it, and there should be also some contractual
Speaker 14: provisions that attorney's right. So I represent some celebrities and
Speaker 14: some influencer and when we are working with production companies
Speaker 14: or others, they'll ask us to release the likeness, the tone,
Speaker 14: the image of the.
Speaker 7: Celebrity in perpetuity, in perpetuity and in any medium known
Speaker 7: or unknown or soon to be known.
Speaker 5: That's a wide scope.
Speaker 14: It's a very wide scope. So I think the attorneys
Speaker 14: they have a power of a pen. And when the
Speaker 14: other side says this is a deal breaker, you should
Speaker 14: just take a step back and ask yourself.
Speaker 7: Is it really a deal breaker?
Speaker 14: Or can we carve out something to keep the integrity
Speaker 14: of the image of the person.
Speaker 1: Any idea how this act that the writer's strike will
Speaker 1: play out, because I'm not sure the Well, if I
Speaker 1: were a media company, I'd be saying, hey, guys, I'd
Speaker 1: love to give you a cut of the streaming revenues
Speaker 1: or whatever. But I don't know what they're going to be.
Speaker 2: You know, I don't know how the economic side is unclear.
Speaker 2: I heard your interview yesterday with I think she was
Speaker 2: the head of a guilt Yeah, yeah, a writer's guild,
Speaker 2: and she I mean, her insistence is that these streams
Speaker 2: companies are just cashing in hand over fist and making
Speaker 2: billions and billions and billions in profits. But as we
Speaker 2: know from watching the market move every day, investors aren't
Speaker 2: sure about that.
Speaker 1: No exactly, so any sense of how this might play out?
Speaker 1: It seems like it could go on for a long time.
Speaker 14: It can go on for a long time, but I
Speaker 14: think as more people feel the pain, they'll have to
Speaker 14: be some compromises. Right now, it seems like everyone has
Speaker 14: their dukes up yea, and nobody cares about the you know, fringes.
Speaker 14: But this strike is not only affecting writers and actors.
Speaker 14: It's affecting so many other people in the professional Tangentially.
Speaker 2: It reminds me tangentially of the lawsuits we saw flare
Speaker 2: up over NFTs. Yes, and I wonder did we ever
Speaker 2: sort that out? For example, Quentin Tarantino wanted to make
Speaker 2: an NFT.
Speaker 5: I think of his script for.
Speaker 2: Paul Fiction, right, but the Studio said no, no, no, no,
Speaker 2: Hang on a second, we own that script, you know,
Speaker 2: even though you have the physical paper copy in his hand.
Speaker 2: So there were similar copyright issues coming up around Crypto.
Speaker 7: Yes, well, the.
Speaker 14: Copyright laws are the same, they're applied across the board.
Speaker 14: But again a lot of this can be taken care
Speaker 14: of contractually, hence this strike. But here neither side seems
Speaker 14: to be communicating very well, and that always ends badly.
Speaker 1: All right, Ronnie, thank you so much for joining us.
Speaker 1: Lots of issues out there for you guys to figure out.
Speaker 1: Ronnie is set Home Managing Partner, set Home Lawgroup.
Speaker 6: You're listening to the tape Cat's are live program Bloomberg
Speaker 6: Markets weekdays at ten am Eastern on Bloomberg Radio, the
Speaker 6: tune in app, Bloomberg dot Com, and the Bloomberg Business App.
Speaker 6: You can also listen live on Amazon Alexa from our
Speaker 6: flagship New York station. Just say Alexa play Bloomberg eleven thirty.
Speaker 1: Cam Harvey, he's professor finance down there at the Duke University.
Speaker 1: All right, let me explain to how this works at
Speaker 1: FUCA when I was there. Here's the grading system pass,
Speaker 1: high pass, Superior pass, anything below pass you don't want
Speaker 1: to talk about now. On Cam Harvey's class Futures Options.
Speaker 1: I think I don't know what it was. It was
Speaker 1: something very hard. I didn't say with great comments. I
Speaker 1: probably did not get a superior pass. There's chance I
Speaker 1: got a high pass. But if I had to put
Speaker 1: money on it, I put it pass. Yeah, but that's okay.
Speaker 2: Well, and you're not an economist, and what we said,
Speaker 2: we still have questions to ask.
Speaker 1: You still have questions. What we said back in the
Speaker 1: day is twenty p's twenty passes equals sixty g's, which
Speaker 1: was the going right on Wall Street for You're in
Speaker 1: the NBA, so all you had to do is pass.
Speaker 5: That's a really materialistic way to look at in your generation.
Speaker 1: That's why expiration because I played golf every day. Hey,
Speaker 1: camp professor, thanks so much for joining us here. What
Speaker 1: did you take away from boy? We had a lot
Speaker 1: of central bank speak over the past couple of days,
Speaker 1: with the ECB this morning and the FED yesterday. What
Speaker 1: are you taking away from some of these central bankers.
Speaker 8: That they fundamentally are misjudging the inflation threat? It is
Speaker 8: It is shocking to me that you just need to
Speaker 8: look at the data. Look at the most recent inflation release,
Speaker 8: which was three percent, and actually the more precise number
Speaker 8: was two point nine seven percent. And if you look
Speaker 8: at the drivers of inflation, the main driver is shelter.
Speaker 8: So shelter is a little over one third of the CPI,
Speaker 8: and shelter is running at seven point eight percent. So
Speaker 8: let's do some really simple math. The contribution of shelter
Speaker 8: to that three percent print is about one third of
Speaker 8: seven point eight percent, and that comes to about two
Speaker 8: point six percent. So almost ninety percent of the inflation
Speaker 8: print was shelter, and shelter is not running at seven
Speaker 8: point eight percent. So you look at the data, you
Speaker 8: look at rents year over year, you look at housing prices,
Speaker 8: it's close to flat or one percent or two percent,
Speaker 8: and it's because shelter lags. So that's seven point eight
Speaker 8: percent is reflecting stuff from six to nine months ago.
Speaker 8: If we use the real data, the inflation is not
Speaker 8: three percent, is one point five percent, and it seems
Speaker 8: to give the reason that, oh, well, inflation is still there.
Speaker 8: It's three percent, that it's not two percent. It's a
Speaker 8: false logic, a totally false logic. So this increase that
Speaker 8: the FED just did was completely unnecessary. It increases the
Speaker 8: risk in many different dimensions that we are pushed into
Speaker 8: an unnecessary recession.
Speaker 15: So, Professor Harvey, this is Barry Ridults. Let's pretend I'm
Speaker 15: in your class at school, and I want to argue
Speaker 15: this proposition that the not only have we seen homes
Speaker 15: underbuilt since the ear and the financial crisis, but the
Speaker 15: FED raising rates as aggressively as they have are actually
Speaker 15: making owners' equivalent rent and apartment rentals more expensive. They're
Speaker 15: forcing people who would otherwise be home buyers into the
Speaker 15: rental market. What's the number, Something like sixty one percent
Speaker 15: of homeowners with mortgages are at four percent or less
Speaker 15: and they don't want to pay seven and a half
Speaker 15: percent more for a mortgage. Should the is the FED
Speaker 15: two title ready? Are they accidentally driving owners equivalent rent
Speaker 15: and CPI higher?
Speaker 16: Yeah?
Speaker 8: So, very great points, And you just need to look
Speaker 8: at the data. So if you go to Zillow or
Speaker 8: red fan, you see that rents year every year are
Speaker 8: running at one percent, zero percent been in a negative territory.
Speaker 8: There's a big disconnect between what people are paying and
Speaker 8: what is in the actual SPI. And we've seen this before.
Speaker 8: This is not new. This is the mistake the FED
Speaker 8: made initially in thinking that inflation was transitory, that the
Speaker 8: numbers that were using for owner's equivalent rent were really
Speaker 8: really low, when we could observe in the market that
Speaker 8: it was much higher. And there's a reason for these legs.
Speaker 8: So the lag makes sense. So if there's rental inflation,
Speaker 8: for example, it goes up by ten percent, well that
Speaker 8: only hits you if you have to have your lease renewed,
Speaker 8: and many people have a longer lease, so that ten
Speaker 8: percent inflation wouldn't be realized until you actually renew your lease.
Speaker 8: So there's a natural leg. And my point is that
Speaker 8: this component, which is driving ninety percent of the current inflation,
Speaker 8: that is going to head down. It just takes a while.
Speaker 8: And again this is very similar to what we saw
Speaker 8: with the so called transitory inflation, that that inflation is
Speaker 8: substantially mitigated. And the other point you're making about increasing
Speaker 8: the rates causing problems, it's like two sided. So those
Speaker 8: that have mortgages that are already attractive, you're correct, that
Speaker 8: is the disincentive to move, and it does put pressure
Speaker 8: on the rental market. But again looking at the data,
Speaker 8: we don't see that rental inflation. We saw it go up,
Speaker 8: but now it's down and that partends the future. And
Speaker 8: again it undercuts very substantially the fed's logic.
Speaker 2: And yes, so, professor, does does this mean that the
Speaker 2: FED is going to push us into asion? And I
Speaker 2: want to bring in also your yield curve inversion to
Speaker 2: the discussion, because I have in front of me the
Speaker 2: three month ten year yield curve. We're looking at an
Speaker 2: inversion of one hundred and fifty basis points basically, And
Speaker 2: I was talking about Jeff Sherman from Double Line earlier.
Speaker 2: He thinks that that signal signals a deep recession and he's,
Speaker 2: you know, very concerned about it over there.
Speaker 5: Is that fair?
Speaker 2: Do you think when you look at the history of
Speaker 2: this yield curve inversion does it?
Speaker 7: Does it?
Speaker 5: Is it a good signal for a recession?
Speaker 6: Yeah?
Speaker 8: So, as you know, this is my dissertation at the
Speaker 8: University of Chicago, and at the time pretty good. It
Speaker 8: was like four out of four. Now it's eight out
Speaker 8: of eight without a fault signal. And we've had this
Speaker 8: inversion that is like ten months inversion.
Speaker 5: And without a false signal.
Speaker 2: Is an important clause because Rick Reader was on with
Speaker 2: us the other day from black Rock, and he said,
Speaker 2: the yield curve inversion is forecast nine out of the
Speaker 2: last three recessions or something like that.
Speaker 5: But I think people look at it two.
Speaker 8: Yeah, yeah, it's totally false, And of course you need
Speaker 8: to There could be a part of the yell curve
Speaker 8: that you choose that's got a lot of false signals.
Speaker 8: I'm talking about what I chose, the ten year minus
Speaker 8: three month, and that doesn't have any fault signals yet.
Speaker 8: Of course it could be a false signal, but it's
Speaker 8: too early to declare a false signal. The lead time varies,
Speaker 8: so that's not consistent. So the lead time has been
Speaker 8: as short as five months and as long as twenty
Speaker 8: two months, so it's too early to tell. But again,
Speaker 8: let's not just look at this signal, but look at
Speaker 8: the economic logic as to what is happening when you
Speaker 8: severely invert the ill curve, and when you averted in
Speaker 8: a way where short rates and long rates go up,
Speaker 8: then you were stressing the financial system. So an inverted
Speaker 8: deal curve is bad for banks because it hits profitability
Speaker 8: because they're paying a short term rate and kind of
Speaker 8: receiving a long term rate. But when that longer term
Speaker 8: rate also goes up, that hits the balance sheet also.
Speaker 8: And we've already seen this play out in March in
Speaker 8: terms of you know, some banks failing. So this puts
Speaker 8: stress on the financial system and it creates other issues
Speaker 8: in addition.
Speaker 15: So, Professor, given how rapidly the FED has been raising rates,
Speaker 15: and given that we've spent so much time at zero
Speaker 15: in the last moments we have, how impactful has that
Speaker 15: rapidity been to this inverted deal curve?
Speaker 8: Yeah, so, the the scale of the inversion is unprecedented
Speaker 8: in the data that I've looked at. So of all
Speaker 8: of the inversions is number nine, this one is the
Speaker 8: largest relative to the long term rate. So we're in
Speaker 8: an area of the data that we've never seen before.
Speaker 8: And on top of that, the FED is pushed very quickly.
Speaker 8: And in January I said, given my look at the
Speaker 8: shelter data in inflation, they should stop. They did not stop.
Speaker 8: And what they're doing is just increasing the risk of
Speaker 8: a hard landing. It seems there calculus is unemployment has
Speaker 8: to increase, people have to be thrown out of their job.
Speaker 8: That is not necessary. We don't need a reset, all.
Speaker 1: Right, Caim, thank you so much for joining us, Campbell Harvey.
Speaker 1: He's a professor of finance at the Fucal School of
Speaker 1: Business at Duke University. I appreciate getting his thoughts here
Speaker 1: on the Central Banks and on the Inverted Yield cover.
Speaker 6: You're listening to the tape can Tour live program Bloomberg
Speaker 6: Markets weekdays at ten am Eastern on Bloomberg Radio, the
Speaker 6: tune in app, Bloomberg dot Com, and the Bloomberg Business app.
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Speaker 6: flagship New York station Just say Alexa, play Bloomberg eleven thirty,
Speaker 6: What a Deed?
Speaker 17: Even deeper into metas earnings reports CEO Mark Zuckerberg, saying,
Speaker 17: look quote, we continue to see strong engagement across our
Speaker 17: apps with the most exciting roadmap I've seen in a while.
Speaker 17: Our investments in AI will continue. We remain fully committed
Speaker 17: to the metaverse vision as well. Let's again further with
Speaker 17: Meta Chief Financial Officer Susan Lee joining us. And it's
Speaker 17: not just Mark finding things, exciting investors, analysts, upgrading exciting
Speaker 17: economy for the world at large. Today it feels here
Speaker 17: in the United States, how excited Susan, are your clients
Speaker 17: right now how resilient is this digital ad spending well?
Speaker 18: First of all, thank you Ed Andternline for having me at.
Speaker 18: It's a pleasure to be with you guys and with
Speaker 18: your viewers this morning. You know you noted that we
Speaker 18: reported really strong Q two results. We're really happy with
Speaker 18: all of our execution efforts across our core user and
Speaker 18: engagement metrics. Obviously, the reacceleration in our ad revenue which
Speaker 18: we've been talking about and you know which we think
Speaker 18: is the is the reflection both of an improvement in
Speaker 18: the macroeconomic landscape which the digital ads market is so
Speaker 18: closely tied to, along with our own efforts continuing to
Speaker 18: invest in and execute on quarters and years of work
Speaker 18: in making sure that our ad systems are performing well,
Speaker 18: that we're delivering measurable results for our advertisers, and we
Speaker 18: really have seen those results bear fruit.
Speaker 12: So that's something we're really excited about.
Speaker 18: In Q two, we also talked about how our year
Speaker 18: of efficiency work is really setting us up for success
Speaker 18: going forward.
Speaker 12: I think it's put us into a place.
Speaker 18: Where we have a leaner cost structure which will serve
Speaker 18: us well as we plan for the future, and it's
Speaker 18: also enabling us to move faster, to build more and
Speaker 18: ship more quickly new products and experiences in service of
Speaker 18: what of our customers, and so Mark talked about this
Speaker 18: yesterday on the call. Threads is a really good example
Speaker 18: of that. It's something that we built with a relatively
Speaker 18: smaller team on a tighter timeline, and I think is
Speaker 18: a good reflection of the year of efficiency paying off
Speaker 18: for us. Finally, the last theme I'd highlight from our
Speaker 18: earnings call is around twenty twenty four, we have I
Speaker 18: think a lot of compelling opportunities to invest in. We
Speaker 18: talked about our AI investments and how that will flow
Speaker 18: through and too infrastructure costs. We talked about hiring top
Speaker 18: tier technical talent as we evolve our workforce towards a
Speaker 18: more technical mix, and then of course our longer term
Speaker 18: ambitions and vision for reality labs and for the metaverse.
Speaker 16: You know, AI also seen Susan two AI recommendations on
Speaker 16: the timeline to have a real impact on engagement, particularly
Speaker 16: on the core FACEOK platform. How much is that a
Speaker 16: driver behind the forecast for the current period of thirty
Speaker 16: four point five billion dollars in sales.
Speaker 12: It's a great question.
Speaker 18: First, I want to say we have been investing in
Speaker 18: AI for a really long time. We often use the
Speaker 18: phrase core AI to talk about the work that's been
Speaker 18: powering our ranking and recommendations engines, which are really the
Speaker 18: foundation of both our organic recommendations for the content that
Speaker 18: you see.
Speaker 12: Along with the ADS work.
Speaker 18: And in particular, one of the big drivers of growth
Speaker 18: that's been both strong on our platforms and increasingly incremental
Speaker 18: is around recommending content from accounts that you don't already follow.
Speaker 18: We often call this unconnected content, and that's been really
Speaker 18: good for core engagement trends. And then of course the
Speaker 18: AI investments, as we've put GPU capacity towards our ADS,
Speaker 18: ranking and recommendation systems have really paid off. So I
Speaker 18: think that's really translating both into the results that you've seen.
Speaker 18: It's part of what factors and to our guidance, along
Speaker 18: with of course a big range of possible macroeconomic outcomes.
Speaker 18: At the same time, we're really excited about a newer
Speaker 18: opportunity ahead of us in the GENAI space, and that's
Speaker 18: really around building compelling new consumer experiences. Mark talked about
Speaker 18: some of the things we're working on on the call yesterday,
Speaker 18: making it easier for people to create better, more individualized content,
Speaker 18: and then of course also making it easier for businesses
Speaker 18: to communicate with the consumers that they want to reach.
Speaker 12: That is newer for us.
Speaker 18: That's not factored into our revenue guidance or our revenue
Speaker 18: outlook in any meaningful way, but it's something that we're
Speaker 18: really excited about the opportunity to build new and compelling experiences,
Speaker 18: and we think it'll be an important part of our future.
Speaker 16: Susan, why did Meta change its mind about charging cloud
Speaker 16: providers for access to Lama too, I'm not.
Speaker 12: Sure what you mean by changed.
Speaker 18: By changing our mind, we've made Lama to free and
Speaker 18: widely accessible. They're a small handful of really large cloud
Speaker 18: providers that we're working on specific arrangements with, but broadly speaking,
Speaker 18: we expect this to be free, and we want it
Speaker 18: to be accessible to a really to a really wide
Speaker 18: range of possible use cases.
Speaker 17: Cloud providers, will they be charged anything.
Speaker 18: This is a place where, again with very specific cloud
Speaker 18: providers who have very large user bases. Again we're working
Speaker 18: on specific arrangements with them, but it's not something that
Speaker 18: we broadly anticipate charging.
Speaker 17: For and of course, we're all waiting to see when
Speaker 17: you turn on the money funnel from Threads. I'm interested
Speaker 17: as to how much inbound you're getting from clients, how
Speaker 17: many want the capacity to start advertising alongside Threads.
Speaker 12: At the moment, you know, we're really very pleased with Threads.
Speaker 18: It's a new standalone app that you know, we released
Speaker 18: earlier this month, and we're where it is in both
Speaker 18: user growth terms as well as engagement and retention trends.
Speaker 18: Is certainly ahead of where we would have expected for
Speaker 18: a brand new standalone app, but it's incredibly early in
Speaker 18: its life cycle. This is not something that we expect
Speaker 18: that we're going to monetize in the near term. We
Speaker 18: know when we launch new consumer experiences that there is
Speaker 18: a playbook around all of the product foundation work that
Speaker 18: needs to be done, around core features that users will
Speaker 18: ask for, being responsive to things that futures users are
Speaker 18: looking for in the product, scaling it over time to
Speaker 18: a much larger user base, focusing on driving increased engagement
Speaker 18: and retention. Those are all things that we're going to
Speaker 18: need to do in advance of thinking about monetization. But
Speaker 18: it's a playbook that we've executed multiple times and We're
Speaker 18: excited for the opportunity to do that again here.
Speaker 16: Susan, I think I'm right in saying you a Facebook
Speaker 16: employee number four hundred and something, four hundred and eight.
Speaker 16: How has the launched a Threads compared internally to bringing
Speaker 16: in Instagram, WhatsApp, the launch of the hardware business and quest.
Speaker 4: Yeah.
Speaker 18: So I joined then Facebook back in two thousand and
Speaker 18: eight when they're around four hundred people here, and so
Speaker 18: I've seen us launch a lot of things over the
Speaker 18: course of that period. Now, some of those examples that
Speaker 18: you mentioned, like Instagram obviously were already popular apps when
Speaker 18: we acquired them. But I think that over the course
Speaker 18: of that time, we've learned a lot of things about
Speaker 18: how to bring products to market, thinking about the trade
Speaker 18: offs between standalone apps or features within existing apps. We've
Speaker 18: learned a lot in our growth playbook and how to
Speaker 18: drive engagement and retention, and I think we're going to
Speaker 18: bring a lot of those lessons to the way that
Speaker 18: we execute against our vision for Threads.
Speaker 16: Caroline asked you about the inbound interest your existing advertisers, saying, Hey, Susan,
Speaker 16: when can I put something on the Threads platform. I
Speaker 16: know you're being conservative and careful about the development, and
Speaker 16: that mark emphasize a lot of product work needs to
Speaker 16: be done as well. But how do you see the
Speaker 16: roadmaps for Threads going, you know, how do you change
Speaker 16: the product so it is monetizable.
Speaker 18: Well, we're excited obviously that there is interest both in Threads,
Speaker 18: the consumer product and of course the eventual prospect of
Speaker 18: advertising on it.
Speaker 12: But it's really just too early, i think.
Speaker 18: To be very specific about what the ads business on
Speaker 18: thread will look like in detail. We're really focused on
Speaker 18: executing on the consumer experience first, making it a great
Speaker 18: and productive and friendly place for people to have public conversations,
Speaker 18: growing it to scale, investing in the features that people want,
Speaker 18: and we'll get to monetization at the right time.
Speaker 17: Of course, us in the media had a field day
Speaker 17: thinking about the competitive force that Threads is Visa VX,
Speaker 17: and then we think about the competition more broadly, you
Speaker 17: versus TikTok, when I'm thinking of the success of reels
Speaker 17: of late, when we're actually more broadly thinking about how
Speaker 17: Meta makes it self not just the money spinner, but
Speaker 17: a culture spinner here where people start trends not just
Speaker 17: perhaps copy them from TikTok and bring them on to reels.
Speaker 17: Do you feel you've got that now at Meta?
Speaker 18: I think that we've been, over the course of the
Speaker 18: time that I've been here, you know, constantly focused on innovation,
Speaker 18: and I think that we've brought that to bear with
Speaker 18: a lot of the experiences in our family of apps.
Speaker 18: And at the same time, when there are clear secular
Speaker 18: trends in the industry in terms of formats or experiences
Speaker 18: that consumers are looking for, we look to integrate those too,
Speaker 18: and I think we've done a really good job at
Speaker 18: executing on both of those fronts. And then of course,
Speaker 18: looking forward, I think we're really excited about the innovation
Speaker 18: opportunities ahead of us. With Jenai, we think we're industry
Speaker 18: leading here and then of course over the very long.
Speaker 12: Term with our vision for reality labs and the Metaverse.
Speaker 17: We are of course with the Meta Chief financial Officers
Speaker 17: Susan Lee, We're welcome across TV and with our audiences
Speaker 17: and Susan, I've all started talking about everything apps now.
Speaker 17: I know you're about the money, not always developing the product,
Speaker 17: but you think about everything app as Meta as there
Speaker 17: a race on to ensure that we can build that
Speaker 17: here in the us, and you'll.
Speaker 7: Be part of it.
Speaker 12: It's a great question.
Speaker 18: I know that there are other regions around the world,
Speaker 18: in particular Asia, where there are apps that have gone
Speaker 18: down this model. That's not a model that we have
Speaker 18: right now. We haven't seen that use case to the
Speaker 18: same extent in North America. But you know, I would
Speaker 18: say that we're really invested in the opportunities that we
Speaker 18: have ahead of us across our family of apps right now,
Speaker 18: including Threads, which is the newest standalone app in our portfolio.
Speaker 18: And then there's just a lot that we can do
Speaker 18: to make the experiences across our family of apps richer
Speaker 18: and more engaging with the investments that we've made already
Speaker 18: in AI and especially recommending content that you don't already follow,
Speaker 18: and we know that that's brought richer content experiences to people,
Speaker 18: is growing engagement across the apps, and we'll release you know,
Speaker 18: we'll be releasing features over the course of the next years.
Speaker 18: But we're really excited about what we think that this
Speaker 18: is going to bring to bear for the consumer experience
Speaker 18: and of course also eventually for businesses to connect with
Speaker 18: consumers across the family of apps too.
Speaker 16: Susan investors were sanguine about the idea that expenses could
Speaker 16: creep up. I want if you just tell us what
Speaker 16: your priorities are, where you'll invest in talent in the metaverse,
Speaker 16: whether your investments will be on the content side or
Speaker 16: the hardware side.
Speaker 12: Great question.
Speaker 18: We talked about this a little bit on the call
Speaker 18: yesterday when we gave some coller into the twenty twenty
Speaker 18: four outlook. The three themes that I really want to
Speaker 18: talk about there are. First, we expect that our infrastructure
Speaker 18: costs are going to grow because of the investments we've
Speaker 18: made in AI, building GPU capacity, you know, that will
Speaker 18: go towards both the core AI work and the ranking
Speaker 18: and recommendation engines that I talked about, along with the
Speaker 18: new GENAI investments. So that's a place where we're investing
Speaker 18: certainly in a lot of hardware, along with the infrastructure
Speaker 18: such as data centers and network equipment that you need
Speaker 18: to support that. The second area that we talked about
Speaker 18: is we are evolving our workforce toward a more technical mix,
Speaker 18: you know, and we want to hire top tier technical
Speaker 18: talent where we can towards some of our most compelling opportunities,
Speaker 18: including AI and machine learning engineers to work on the
Speaker 18: AI efforts we talked about, and so that's a place
Speaker 18: where we are going to be investing, but we're going
Speaker 18: to be doing it in a very thoughtful way, making
Speaker 18: sure that we're really focusing on the core priorities and
Speaker 18: making trade offs we're appropriate. The third thing that we
Speaker 18: talked about is on the reality lab side. That's certainly
Speaker 18: a very long time horizon and ambitious vision, and we're
Speaker 18: going to be investing in deploying capital toward it.
Speaker 17: The capital coming from that you already have. Are you
Speaker 17: looking at the bond market, are you looking at raising
Speaker 17: more funds?
Speaker 18: You know, we certainly generate enough free cash flow right
Speaker 18: now for us to invest across the organic opportunities ahead
Speaker 18: of us that we see that are compelling. We have
Speaker 18: been raising that we did earlier this year, just as
Speaker 18: we're evolving our capital structure going forward, and that's something
Speaker 18: that will continue to look at and I think do
Speaker 18: on a measured pace going forward. But in terms of
Speaker 18: thinking about the capital available to us now, you know,
Speaker 18: we generate a lot of capital that we're always looking
Speaker 18: to allocate across the organic opportunities that we have, and
Speaker 18: we've talked about some of those and then of course
Speaker 18: shareholder returns.
Speaker 16: Susan really quickly before we lose you. How do you
Speaker 16: and Mark split up responsibilities at the company. What's it
Speaker 16: like working with Mark?
Speaker 18: You know, I've had the privilege of working with and
Speaker 18: learning from Mark for fifteen years here, obviously as CEO,
Speaker 18: you know, and as a product visionary. He really shepherds
Speaker 18: the product roadmap and has defined the long term vision
Speaker 18: for a lot of the things that we're investing in
Speaker 18: with incredibly ambitious goals, and I think that's a tremendous
Speaker 18: and powerful motivator for us, and I try to make
Speaker 18: sure that we have the financial frameworks and targets that
Speaker 18: are going to enable us to invest against those things.
Speaker 18: Innovation isn't free, and that's something that we're very mindful of,
Speaker 18: and we recognize that, especially against some of our longest
Speaker 18: time horizon ambitions, we have to earn the right to
Speaker 18: put capital towards those things in the way that we do.
Speaker 12: What I will say, having worked with.
Speaker 18: Mark for such a long time is he's tremendous at
Speaker 18: adapting to the time that we're in. And so whether
Speaker 18: that was leading a four hundred person startup when I joined,
Speaker 18: whether that was overseeing our transition to the public markets
Speaker 18: during the shift to mobile, or whether that was this
Speaker 18: past year, helping us really retool our cost structure and
Speaker 18: the way we operate, and leading on the Year of Efficiency.
Speaker 18: I think Mark is tremendously good at making hard decisions,
Speaker 18: at acting on them with conviction and looking forward.
Speaker 16: Mesa Chief financial Officer, Thank you so much.
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